MN Supreme Court agrees that a Tax is a Tax

We should all cheer when it comes to improving transparency in government, particularly when it comes to helping taxpayers understand their tax burdens. The Minnesota Supreme Court agrees, recently calling out the City of St. Paul on “fees” that should actually be defined as taxes.

This is good news, right? Well…taxpayers may foot the bill for the right result.

Two significant downtown St. Paul churches – The First Baptist Church of St. Paul and the Catholic Church of St. Mary – took the city to court over so-called “right-of-way assessments” that pay ordinary civic services such as street maintenance and lighting, arguing that the assessments were actually taxes. As tax-exempt organizations, neither church pays property taxes to local governments, although they are responsible for assessment for improvements that directly benefit their properties.

Minnesota Public Radio (ironically – a party to the case) recently reported on the MN Supreme Court’s ruling in favor of these plaintiffs click here for the MPR story. This isn’t small potatoes – as Tim Nelson reports, “The right-of-way assessment now amounts to nearly $30 million a year, compared to a total property tax bill across the city of about $100 million, according to city finance director Todd Hurley.”

So, how do you suppose the city will make up for a possible $30 million shortfall in order to keep the streets free of snow and potholes filled, not to mention lighting the sidewalks at night? Well, MPR gave us the honest answer, for the story continues: “If the Minnesota Supreme Court decision dismantles the city’s street assessment system, tens of millions of dollars could be shifted back onto regular property tax payers and high-value properties, such as downtown office towers.”

This will not happen overnight, thankfully. The Supreme Court moved the case back to Ramsey County District Court, where the City will have another shot at proving the unique value of the street assessment to the affected properties. In the meantime, the City will continue to collect the fees.

We at NAIOP Minnesota will stay tuned to this issue. We applaud any court decision that makes taxes more transparent. However, with municipalities across the state watching this issue very closely, we must be careful avoid further increases our already too-high property taxes to fund basic governmental services.